CFA Defined
A Chartered Financial Analyst is a professional designation from the CFA Institute, previously the AIMR (Association for Investment Management and Research), that assesses and certifies financial analysts' competence and integrity.
It denotes expert-level knowledge and expertise in investment research. The program teaches a wide range of subjects related to advanced investment analysis and generalist knowledge of other areas of finance.
The designation was created in 1963 and has been used widely by finance professionals since then. To this day, it remains one of the most respected professional credentials in the business.
A candidate who completes the program and satisfies additional professional standards is granted the "CFA charter" and becomes a "CFA charter holder."
The certification can boost a financial analyst's profile and open doors to higher-paying positions. Investment managers, buy-side traders, sell-side traders, and professionals in financial counseling, financial planning, and economics can benefit from CFA certification.
CFA vs CFP
CFA and CFP are both respected designations in the world of finance. They both highly value education, preparation, standards of excellence, and ethics.
Two highly competitive professional certifications differ significantly in terms of specialization but are alike when it comes to general concepts that can be applied across different contexts.
First, there are significant variations in program requirements when you compare them with each other. The CFA curriculum is broken down into three levels. The CFP curriculum does not follow this structure; it is more project-based.
Second, there are differences in the scope of practice for each designation. CFA holders can work in financial analysis, portfolio management, risk management, sales and trading, operations research, business development, or general management.
CFP holders can work in financial planning, stock analysis, portfolio management, investment advice, retirement plan consultation, risk management, tax advice for businesses and individuals, insurance advice/planning, or estate planning.
Third, the differences are related to how much study you need to put into earning each designation. CFP requires more hours of study than CFA. On average, it is estimated that you will need to spend 300 hours studying for the CFP designation instead of 240 hours for the CFA.
Lastly, CFA exams are self-study and require the use of a professional exam prep provider. On average, candidates spend six to 12 months studying before taking each exam. CFP exams are more structured in terms of structure and time frame.
CFP requires preparatory materials from FINRA, which gives you access to sample exams and study materials through the CFP board.
CFA Requirements
CFA certification criteria can be met by acquiring a bachelor's degree (or equivalent) in any area. Candidates in their last year of a bachelor's degree program are also eligible to take the CFA certification exam.
To complete the education requirement, an aspiring CFA can substitute 4,000 hours of professional experience (or a mix of work experience and study).
At least 4,000 hours of relevant professional experience are required for CFA certification. Work must directly connect to investment decision-making or provide value to the process to qualify for financial analyst certification.
Before, during, and after the chartered financial analyst program, full-time, part-time, and remote job experiences count toward the 4,000-hour requirement. This qualification may be met by working as a financial adviser, financial planner, portfolio manager, or investment banker.
Candidates cannot replace education with the required professional experience.
CFA Examination
The CFA Program consists of three sequential exams: Level I, II, and III. The exams are administered in English only. The exam for Level I is offered twice a year, in June and December. Levels II and III are offered once a year in June.
Although the examinations can be taken as often as needed, each exam typically requires applicants to study for more than 300 hours.
Given the significant amount of time that must be spent studying, many candidates are discouraged from continuing the CFA Program after failing one of the levels.
To be eligible for a charter, candidates must pass all three tests and have four years of qualifying professional experience in investment decision-making.
Level I
The Level I exam tests a candidate's grasp of basic financial concepts. It focuses on analyzing the tools from the Candidate's Body of Knowledge's ten topic areas.
The test includes ethical and professional standards, mathematical techniques, economics, financial reporting and analysis, corporate finance, and wealth planning.
The Level I test is divided into two 135-minute sessions with 180 multiple-choice questions (session times are approximate). Between sessions, there is an optional break. To get an exam result, candidates must attend both sessions.
Level II
The Level II exam builds on the knowledge learned in Level I by testing a candidate's ability to apply these concepts in real-world situations.
It focuses on asset appraisal and stresses applying investing techniques and principles in real-world scenarios. Financial Reporting and Analysis exam questions are usually based on International Financing Reporting Standards (IFRS).
The CFA Level II exam is comprised of 22 items, including vignettes and 88 multiple-choice questions. The test will last 4 hours and 24 minutes, divided into two 2-hour and 12-minute periods with a break in between.
Level III
It focuses on successful wealth planning and portfolio management by challenging the applicant to synthesize all the concepts and analytical methodologies throughout the program.
The Level III test will last 4 hours and 24 minutes, divided into two 2-hour and 12-minute periods with a break in between.
Preparing for CFA Exam
It is important to note that the CFA curriculum and exams are constantly being updated to reflect changes in the marketplace.
1. Candidates must stay current on their knowledge by reviewing the latest content updates and taking practice quizzes.
2. When studying for the exam, candidates should focus on understanding rather than memorizing the material. The CFA Institute offers a variety of resources to help candidates prepare, including study notes, practice exams, and online courses.
3. One of the most critical steps in preparing for the CFA exams is to develop a study strategy that works for you. Your study strategy should consider your work schedule, exam date, and learning style.
4. Keep a balanced schedule to study for the exam and care for your health by eating well and getting enough sleep.
5. Attend Meetings and Join a Local CFA Chapter so that you can network with other candidates and professionals.
Advantages and Disadvantages of CFA
There are many advantages to becoming a CFA charter holder. The CFA credential is globally recognized and valued by employers.
- The CFA designation can help you stand out in the job market and advance your career.
- In addition, the CFA Program curriculum provides a strong foundation of investment knowledge that can be used in your everyday work.
However, there are some disadvantages to becoming a CFA charter holder.
- The CFA Program is very time-consuming and requires a significant commitment of time and energy.
- In addition, the exam fees can be costly, especially if you need to retake a level.
Final Thoughts
A Chartered Financial Analyst is a professional designation given by the CFA Institute. Earning the CFA designation is challenging but can be very rewarding. The credential is globally recognized and valued by employers.
The CFA Program curriculum provides a strong foundation of investment knowledge that can be used in your everyday work.
If you are interested in pursuing a career in finance, the CFA designation can help you stand out in the job market and advance your career.
But before you decide to pursue the CFA designation, be sure to research the program and consider whether it is the right fit for you.
FAQs
1. What is the CFA?
The CFA designation is globally recognized and valued by employers and is considered one of the most respected and challenging professional credentials in the financial industry. It denotes expert-level knowledge and expertise in investment research.
2. How do I become a CFA?
To become a CFA, you must first meet the eligibility requirements, which include holding a bachelor's degree (or being in your final year of study), having at least 4,000 hours of professional work experience, and passing all three levels of the exam.
3. How to prepare for CFA Exam?
When studying for the exam, candidates should focus on understanding rather than memorizing the material. The candidate should also develop a study strategy that works for them and consider their work schedule, exam date, and learning style.
4. What are the advantages of becoming a CFA?
The CFA credential is globally recognized and valued by employers. The CFA designation can help you stand out in the job market and advance your career. In addition, the CFA Program curriculum provides a strong foundation of investment knowledge that can be used in your everyday work.
5. What are the disadvantages of becoming a CFA?
The CFA Program is very time-consuming and requires a significant commitment of time and energy. In addition, the exam fees can be costly, especially if you need to retake a level.
